Intel’s $15 Billion Gamble on Self-Driving

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Brian Krzanich, chief executive of Intel, at the 2016 Consumer Electronics Show in Las Vegas. Intel is buying autonomous-car-parts maker Mobileye for $15.3 billion, a price that will demand high performance in a competitive if fast-growing market.CreditPatrick T. Fallon/Bloomberg

By Robert Cyran

March 13, 2017

Intel has put the self-driving pedal to the financial metal.

Buying Mobileye for $15.3 billion values the autonomous-car-parts supplier at 30 times this year’s estimated revenue, according to Thomson Reuters data. Justifying such a price tag will take some doing.

Mobileye specializes in helping cars see what is around them. Intel makes high-performance chips and runs data centers. Combining the two should mean better design systems that are aware of their surroundings, crunch huge amounts of data and react on the fly.

Intel estimates that the market for vehicle systems, data and services will be $70 billion in 2030. While that is an absurdly long time frame for a financial prediction, the eventual amount could easily be far higher. The fast-expanding ability of computers to make sense of the world by sight will probably create undreamed-of markets.

Combining the entrepreneurial Israeli outfit and the blue-chip Intel may be awkward; Intel has struggled to integrate acquisitions before. Having paid $7.7 billion for McAfee in 2010, for example, Intel sold a majority of the unit six years later in a deal valuing it at just $4.2 billion.

The financial justification for the deal, though, is a stretch. The $175 million of expected cost cuts carry a present value of around $1 billion once taxed, discounted and capitalized. That is a country mile from the roughly $4 billion premium that Intel is paying.

That leaves Mr. Krzanich and his shareholders relying on Mobileye’s stunning growth continuing. Revenue is running at a 45 percent annual clip, while its operating margin of around 35 percent in recent quarters could hit 60 percent in the coming years, according to the consensus estimate of Wall Street analysts.

Intel will need to sustain these for five years before the deal starts earning close to Intel’s cost of capital. Meanwhile, Qualcomm, Nvidia, Google parent Alphabet and a slew of other firms are gunning for the market. That leaves plenty of chances for a wrench to end up in the works.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.